The Obama administration’s new wave of economic proposals is a curious mixture of revenue-neutral spending and modest tax cuts. On Labor Day, President Obama mounted the stage in Milwaukee to offer a $50 billion in new infrastructure spending (combined with the creation of an infrastructure bank and renewal of the surface transportation infrastructure bill). (see WSJ coverage here).
According to Jackie Calmes (NYT), the President will introduce additional measures at a scheduled Wednesday speech in Cleveland. They will include changes in the tax code “allowing businesses to deduct from their taxes through 2011 the full value of new equipment purchase, from computers to utility generators, to increase demand for goods and create jobs” and “a provision to expand and make permanent a tax credit for corporations’ research and development expenses.”
Clearly, the administration is attempting to salvage the midterm elections by creating the impression that it is focused like a laser beam on the economy. At the same time, it is attempting to design programs that could potentially win the favor of Republicans and deficit-weary Democrats facing a tough November. Thus, the infrastructure initiative is to be deficit neutral, funded through the elimination of various corporate tax deductions and the depletion allowances for oil and gas companies. And the other measures are tax cuts for business. As Calmes reports:
Though liberal and labor groups have been agitating for public works spending, Mr. Obama and his advisers are emphasizing business tax cuts in hopes of drawing Republican support — or, failing that, to show that Republicans are so determined to thwart Mr. Obama that they will oppose even ideas that they and most business groups, like the U.S. Chamber of Commerce, advocate.
Will any of this matter? To begin with, there is little to suggest that Republicans are going to support any economic proposal made by the administration (if you have any doubt, consult the WSJ piece cited above). President Obama might as well right off the Right.
Hypothetically, the Left—currently dispirited—could be mobilized in greater numbers if the administration embraced a larger stimulus. But a revenue-neutral infrastructure project (so much for the embrace of Keynesianism) and a scattering of business tax cuts are likely to have little effect and only fuel the criticisms of Left intellectuals. Consider Paul Krugman, who argues that the $50 billion package is too small and won’t pass anyway. “My response to the administration plan, at least as best as I can respond given a massive case of jet lag, is a big eh.”
Voters, already skeptical of Washington and convinced that the administration is incapable of managing the economy will likely view the administration’s proposals as transparently political, if they notice any at all.
Corporations, sitting on cash and unwilling to invest under conditions of uncertainty will be unlikely to reverse their positions on the even of an election.
So what is to be gained?